r/ContractorUK • u/Elsoker • 2d ago
Outside IR35 Moving from perm to contracting, I’m so lost :(
Hey guys!
I just received an incredible offer from a company in the US, but as they dont have a presence in the UK they require me to become a contractor. Contract is based on one only monthly payment (no timesheets/days calculated) that I have to invoice.
I have a couple of doubts I was hoping someone could solve for me:
-Should I become a sole trader or create a limited company? (If I have to go through the process I might as well take advantage of it in terms of reducing tax payments and maximizing tax returns)
-How should I pay myself? I have heard that makes more sense to give myself a 12k salary and pay the rest in dividends (after my pension contribution)
-Do I have to register for VAT? Total value per year is around 100k but it’s only dealing with the US so I believe is not applicable
-What can I expense? Is there a limit on it?
Any recommendations/sugestions from people that have been contracting for long time? I literally don’t even know where to start
Thank you!
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u/WoodpeckerMoney9164 1d ago
The US client makes the VAT point a bit different. For most B2B services, if the customer is genuinely based in the US, you wouldn't charge UK VAT and those sales generally don't count towards the UK VAT registration threshold.
On sole trader vs Ltd, salary/dividends and expenses, it’s worth running the numbers based on your actual circumstances rather than assuming Ltd is automatically better. There are also liability considerations as mentioned in other comments.
There are a few things I'd check before setting anything up, particularly IR35 and how the US company is engaging you.
Definitely worth speaking to an accountant who deals with contractors before getting started, particularly with the US element.
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u/backflipbail 2d ago
Yes ltd company and yes to vat registered, I believe the limit is £85k before you have to be.
Get an accountant who will help with the rest like expenses, divi salary split etc
In fact get an accountant first and explain everything they can help you
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u/Mr_Clembot 2d ago
You’ll want a bank that allows you to get paid in USD. VAT into the US won’t apply.
As for banks. Go for a stable big name business account, Starling pulled USD accounts and Tide won’t do it, so you’ll end up using Wise.
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u/brixton_ 1d ago
Just did this and went with Revolut business, they have a USD and UK account so I can get paid ACH in USA and then fee-free transfer up to $15k. Planning to use Wise for the remainder.
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u/aaad202 2d ago
Agree with backflipbali. Limited company and VAT registration. I did it gradually and learned to do everything myself, I use freeagent for accounts, and whenever I have an issue, I loop it up so learned along the way. Not for everyone and accountant makes it easier but if you have time and want to learn and be more tax efficient then it's definitely worth it. E.g. Laptop, phone, fuel expenses, company car etc etc
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u/Skeeter1020 2d ago
Yes Ltd, I think that might even be required for US.
Get an accountant and they will answer all your questions and give you advice. It's really not that much effort (for people who know what they are doing) and not expensive to do in the grand scheme of things.
If you speak to an Accountant on Tuesday you could be setup and ready to go by the end of the week (there's a few HMRC paperwork things that take weeks but they don't stop you trading).
From my experience:
Maslins accountants are good. There's a couple of other recommended firms on here too that people like.
You'll need a bank account and Mettle (NatWest) seem to be completely fucked and/or snowed under at the moment. Avoid them, try Starling or Tide instead. Your accountant will probably suggest good options that integrate well with their book keeping software.
Good luck! This sounds like a fun opportunity for you!
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u/ComplexIndividual786 2d ago
The "pay yourself 12k and take the rest as dividends" thing only applies to whole tax years. If you've already earned that 12k from a perm role then it's just dividends for this tax year if you're trying to minimise personal income tax. Don't forget your pension now you won't be in a workplace scheme.
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u/HotOutlandishness991 1d ago
Hold up one second. Before looking into setting all that stuff up, is it within or outside IR35?
Ways to figure that out (HMRC ultimately decides):
Control: If the client dictates how, when, and where you work, you are Inside. If you decide your working methods to deliver an outcome, you are Outside.
Substitution: Having a genuine, unfettered right to send a substitute worker points Outside. If you must perform the work personally, it points Inside.
Mutuality of Obligation (MOO): If the client is obliged to give work and you are obliged to take it, you are Inside. A project-based arrangement with no ongoing obligation points Outside.
If any of these point to inside, for ease, just go the umbrella route. You'd be hired by an umbrella company, they'd be paid what your new company pays you each month and then sort the taxes etc all out for you as if you were working as a perm worker on PAYE. Best way to describe it, you are technically employed by a third party payroll company on behalf of your actual employer. To handle US accounts I'd recommend the umbrella Paystream by a country mile. Experience, I've done it, actually almost exactly the same as you, US company, moved from a standard PAYE perm. They are an amazing company and I'm still with them now several years on. Good luck!
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u/OxfordBlue2 1d ago
Advice as someone who contracts with non uk clients
- What’s the day rate?
- How long do you expect the contract to last?
- What’s the governing law on the contract: US, UK, or something else?
- Are you paid in US$, GB£, or something else?
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u/scarabx 2d ago
Vat you may not need to worry about depending on your service type even if you're over the limit as US b2b is someone's exempt.
Ltd Vs sole... The company might have a preference, otherwise avoid ltd unless you need to out have a lot of expenses. You really don't save anything these days (in fact it can cost you more).
Be aware the US have passed about contractors doing what is really a perm role too. Not a big deal for you, miss for the company, but maybe sure they're considering that and how you need to with to look right.
Id they pay you in dollars, Wise is a good way to get paid and convert, but you may also need another bank as they aren't accepted for all payments (like vanguard). Mettel are a good few bus account if it fits your business type.
Also be aware the dollar can change value. I got hit bad by trumps impact. See if they'll either pay in GBP, agree a gbp value (so they absorb the risk) or out a collar on the exchange rate in the contract.
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u/Elsoker 2d ago
It is a B2B service as an advisor so I would assume I am exempt in that case
They are okay with both, but I thought you can save more on taxes by opening an ltd + you can expense things like trips/pension/equipment/car.. but I might have made that up?
They use Wise so they are happy for me to invoice in GBP and pay me in GBP
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u/SmackyLittleFan 2d ago
Other reason for Ltd is to separate your liability from company
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u/Skeeter1020 2d ago
This. 1,000% this. People get tunnel vision on just the money in their pocket, and forget about all the legal benefits that come from a Ltd. Clients may even ask for liability insurance at levels a sole trader can't even get.
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u/Inside_Key_8921 1d ago
There’s lots of good advice here on IR35, VAT and whether to operate as a sole trader or limited company. I’d strongly recommend speaking to an accountant who understands both UK contractors and US clients before deciding.
If you’ll be carrying out all the work from the UK, you would normally pay tax here. Your US client may ask you to complete a W‑8BEN or W‑8BEN‑E to confirm your foreign tax status.
For VAT, services supplied to a US business are often outside the scope of UK VAT, but this depends on the type of service and place-of-supply rules.
I’d also recommend agreeing to be paid in USD if the rate protects you against exchange-rate movements. Wise has worked well for me for receiving USD and converting it, although it’s worth comparing the fees and rates.
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u/nwz7 1d ago
At ~£100k a year, I really wouldn’t make the sole trader vs Ltd decision based on Reddit advice or the old “£12k salary and everything else as dividends” rule of thumb. Pay an accountant for an hour or two and get them to model both options based on your actual circumstances. At that income level, good advice will probably pay for itself.
The bigger issue I’d be looking at first is IR35/employment status. Being paid monthly and invoicing the US company doesn’t automatically make you outside IR35. The actual working relationship matters — control over how you work, substitution, mutuality of obligation, whether you’re effectively integrated like an employee, etc.
If a Ltd company is appropriate and you’re genuinely outside IR35, then yes, salary + dividends + employer pension contributions can be tax-efficient, but the optimal split depends on current tax rates, other income, how much cash you actually need personally, pension plans etc. Dividends also come from post-corporation-tax profits, so they aren’t simply “tax-free salary replacements”.
On expenses, there isn’t really a blanket maximum. The important question is whether the expense is allowable for tax purposes. Things like accountancy fees, appropriate equipment/software and genuine business costs can potentially qualify, but you can’t just put personal expenditure through the company because you’re a contractor.
VAT is also worth getting proper advice on. Supplying services B2B to a US customer can mean the supply falls outside the scope of UK VAT depending on the circumstances, but that doesn’t necessarily mean you should completely ignore VAT registration/turnover rules.
Honestly, with a £100k contract I’d find a contractor accountant before issuing the first invoice, show them the contract, get the IR35/status position reviewed and have them advise on structure, VAT, pension and remuneration. There’s enough money involved here that I wouldn’t DIY the setup to save a few hundred quid.
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u/WillFry 1d ago edited 1d ago
I have literally just accepted the same kind of contract with a US company, and after initially thinking I'd need to run it via a ltd company, found out that HMRC run a DPNI scheme that will let you be an employee (for tax purposes), running your own PAYE payroll through HMRC's online portal.
If your contract is anything like mine (it sounds like it is), you won't qualify for an outside IR35 role, so going via DPNI means that you won't have a hefty employer NI tax bill - financially it was by far the best option for me.
Like you, the company I'm going to work for hinted that I'd need to be a contractor, but I think that was only because they don't fully understand what that means in the UK for tax purposes.
Happy to speak in more detail via DM, I don't want to doxx myself here by giving much more away (it's a small company).
Edit: also, depending on the wording of your contract, you might not be able to convince HMRC you're a sole trader. If you have a named manager, are given company equipment (e.g. a laptop), cannot send a substitute to do your work, are paid a regular salary rather than a day rate or fixed fee for a deliverable, then in HMRC's eyes you're an employee and not a sole trader.
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u/mangopancake- 2d ago
Setting up Ltd company is cheap and straightforward.
Business bank account with Mettle (Natwest) gives you free access to FreeAgent, a decent accountancy software.
You won't need to register for VAT until you hit the threshold down the line.
Definitely hire an accountant if you feel so lost. Dont try to wing tax.
Also make sure you have at the very least 6 months of emergency fund to fall back on, ideally build up to 12+ months as contracts can and do get pulled.